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Omicron Variant Raises Concerns About Stagflation In US

The highly contagious Omicron strain of coronavirus has not only added extra-ordinarily high pressure on healthcare infrastructure across the globe but also sent shock waves across the United States’ market about stagflation – a mixture of rising inflation and declining growth.

The strain was discovered in Africa earlier this month and fifteen countries have so far reported the cases for the concerned variant. This can disrupt the economic rebound that the countries have seen in recent months.

The World Health Organization (WHO) has called this variant–Omicron a “variant of concern” because the risk of infection is higher and so is the possibility of vaccine evasion. Several countries, including the US, Canada and the UK, have raised red flags on the people coming from the countries in southern Africa.

The markets reacted quickly to the news as the globe is struggling to limit the spread of Omicron. Risk assets were sold off, including equities throughout the world, which suffered significant losses. On Friday, the VIX, which is sometimes referred to as a “fear index,” jumped nine points to over 27. Oil prices have dropped by more than 10%. Meanwhile, US government bond yields fell for the first time since last year, with the 10-year Treasury yield falling 16 basis points.

A renowned economist told Fox News that the faster spread of Omicron further aggravate supply chain woes and amplifies record-high inflation pressures.

“Those two things together: lower growth, high inflation are stagflation, and that’s what the market is worried about right now,” said Mohamed El-Erian, the chief economic adviser for financial services firm Allianz.

“I think it’s time for a change in policy at the Fed… inflation is not transitory and it’s really important for the Fed to realise this,” he added.

Omicron was discovered for the first time in southern African samples earlier this month. As additional scientists looked into the newest world-threatening outbreak following Delta, it was discovered that Omicron had more than 30 mutations, the most of any coronavirus variety to date.

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